The influence of the HVACR industry is growing on Capitol Hill, and the focus is paying off. Changes to the tax law passed in the Tax Cuts and Jobs Act will allow Heating, Air-conditioning & Refrigeration Distributors International (HARDI) members to invest more and the industry to grow. This column will highlight significant wins in the tax law, outline some of HARDI’s 2018 legislative priorities, and conclude by recommending that every HARDI member attend the Congressional Fly-in May 22 in Washington, D.C.
Tax Cuts and Jobs Act
In December 2017, the long-awaited Tax Cuts and Jobs Act finally became law. The law included several HARDI priorities, including lowering pass-through and corporate business taxes; maintaining Last-in, First-out (LIFO) accounting; providing relief from the federal estate tax; and, most importantly, allowing full expensing of HVAC products. HARDI businesses structured as pass-throughs will be taxed at the reduced individual 10, 12, 22, 24, 32, 35, and 37 percent tax rates. For businesses structured as statutory C corporations, the top income tax rate has been permanently reduced from a graduated 35 percent rate structure to a flat 21 percent rate. Additionally, the tax bill doubled the estate tax exemption to $11 million per individual and $22 million per couple until 2025.
Starting in 2015, HARDI government affairs has led the effort to push Congress to allow full expensing of HVAC equipment. HARDI partnered with former Congressman Pat Tiberi, R-Ohio; current Congressman Ron Kind, D-Wis.; and Sen. John Thune, R-S.D., to introduce legislation that would create a real-property exemption in Section 179 expensing to allow HVAC property. The language included in Thune’s bill was included in the final version of the Tax Cuts and Jobs Act. HARDI is currently working with our industry partners to inform customers, contractors, and distributors about the change in the law. The new tax law’s changes took effect on Jan. 1, and the IRS is currently working on implementing the changes. It’s important that HARDI members ensure they’re using the new IRS tax withholding tables for all employees prior to Feb. 15. The new withholding tables are available at http://bit.ly/IRS18.
With last month’s government shutdown, expect 2018 to be a year of gridlock. The shutdown in the Senate was yet another example of election-year politics taking over Congress, but there is hope for some bipartisanship. HARDI believes there are several legislative industry goals that can be met in 2018. Last year, HARDI members advocated for HR 2353, the Strengthening Career and Technical Education for the 21st Century Act, which passed the House with 405 bipartisan votes. HARDI supports this bill with the understanding it will help recruit professional HVACR contractors necessary for the future of the industry. Regulations are also a major concern for HARDI members, and the industry is looking to Congress to modernize the process by which regulations are developed and implemented to more accurately assess the cost and benefit of regulations. This legislation updates the regulatory process for a modern economy, better protects small businesses, and would provide regulators with more information from stakeholders and allow for smarter regulations. The bill was sponsored by Rep. Bob Goodlatte, R-Va., and passed the House with 238 bipartisan votes.
Online Tax Reform
This year, the U.S. Supreme court will address the nearly two-decade-long fight to consider freeing state and local governments to collect billions of dollars in sales taxes from online retailers, agreeing to revisit a 26-year-old ruling that has made it difficult for states to tax across state lines. The Supreme Court’s 1992 Quill v. North Dakota ruling, which involved a mail-order company, said retailers can be forced to collect taxes in states where the company has a physical presence. HARDI has supported legislation that will regulate online sales taxes. The Remote Transactions Parity Act was introduced by Congresswoman Kristi Noem, R-S.D., and has bipartisan support. A Senate companion bill, the Marketplace Fairness Act, passed in 2015.
Geothermal Tax Credits
The spending bill passed in February brought back the geothermal tax credits that expired at the end of 2016. The bipartisan budget act that passed Congress retroactively extended the 30 percent residential geothermal tax credit included in Section 25D. The spending bill also extended the 10 percent tax credit for commercial geothermal applications in Section 48.
Given the fact that we just passed comprehensive tax reform for the first time in 30 years, and the process moved quickly, there are a number of technical corrections Congress now needs to address. HARDI will be seeking to make sure the definition of HVAC equipment for the purposes of expensing is as broad as possible. Passing a technical corrections bill will require 60 votes in the Senate, but both parties seem motivated to make these technical corrections. We are working with staff from the House and Senate tax-writing committees on legislative language that should cover all technical corrections. Finally, HARDI is working to ensure that the individual tax cuts codified in the Tax Cuts and Jobs Act remain in place after their 2025 expiration date.
HARDI had a record number of members attend the industry fly-in last year. Politico influence noted, “Members of Heating, Air-Conditioning, & Refrigeration Distributors International are on the Hill for their annual fly-in today to meet with 200 members, including Sens. Orrin Hatch, John Cornyn, and Ron Wyden; House Speaker Paul Ryan; and Reps. Kevin Brady, Greg Walden, Peter Roskam, and Kyrsten Sinema, on small business issues, including tax reform, LIFO preservation, regulatory reform, and career technical education.”
This year, it’s even more important for HARDI members to participate in the Congressional Fly-in on May 22. In many ways, there is even more at stake now that Congress has cut taxes. We now have more turf to defend on business tax rates, the estate tax, HVAC expensing, and regulations. Our growing strength is a result of increasing business owner engagement and will need even more member participation if we are to successfully lock-in the positive changes from the tax law and pass more HARDI legislative priorities.